RESP with "Knowledge First Financial" | General financial discussion | Discussion forum

Yas,

First of all, don't believe those salesman talk. Secondly, make your plan simply. Thirdly, RESP is for education only, not for life insurance.

Here are what I did for my children.

1) Maximize my RESP contribution since 1995.
2) Invest all (my contribution + CESG) in long term bonds (because you know when your children need the money for the university). I used to buy strip bonds because I can buy more. The first strip bond I bought is Bell Canada, and I paid 15 cents (1995 money), and I got $1 in 2010.
3) my RESP since in more than 8% yearly compound since. It's safe and secured.

Hope this will help you. Don't gamble your RESP / RRSP on equity market.

I don't know much about RESPs as I have never used one. However, in general I agree with Brimleychen, based on what I can see.

If you need life or disability insurance, and I would say you do if you have a young child, then you should buy them as such, probably from an insurance broker who can access several plans and rates. It's possible your sick leave or longterm disability insurance through workplace would suffice for disability but that varies so would need to be checked.
It will cost you more to have the insurance separately, but it is much better because it gives you the possibility of providing properly for your child. If you should come disabled or die, the primary concern will be providing for your child, period, never mind the relative luxuries of RESPs. You need to cover this off first.
What you are being offered is comparable to mortgage insurance. Mortgage insurance does not really make good sense unless someone is forcing you to take out the policy due to low down payment. You're much better off to get the life and health insurance privately. Buy enough of it to cover your mortgage payments.
Further, this insurance policy that comes with the RESP will probably expire once your child goes to university or the plan disbands. At that point you will be 15 years older, may have developed health problems and might have difficulty getting a new policy. Buy it now, when you are unlikely to have to answer so many health questions.

I don't think you'll be able to get 8% on strip bonds NOW because rates have come down. Similarly, this RESP fund posted MINUS 1.9% last year. They seem to be saying they make up the difference somehow, perhaps mostly through abandoned plans, so that the rate comes out to a reasonable amount somehow, but they make no promises of future performance based on past results. I couldn't find any info on what you would be invested in through this fund, and that turned me off.

Yas, in most cases, so call "expert" are no better than you and me, that's because market can factor in all factors that influence it immediately and it is very hard to out run the market by knowing news in advance. (The strong form /semi - strong form efficient market)

I will stick with long terms strip bonds, just as what what Loonie and Brimley have suggest. Be advice through, strip bonds are more volatile as they only pay all their return when it mature.

I too know nothing about a RESP...its use, value, or ability to provide funds.

I would be concerned about the insurance part...does it really pay when you "think" you need it ...what is in the small print. Decades ago when mortgage insurance came out.....I was convinced by an Insurance agent to not buy it. I was in the market for insurance and here is why I chose not to buy mortgage insurance....the insurance does not always fully pay out the mortgage.....the insurance ends when your mortgage is over.....so now that you are 40 years old or older, look how much the same coverage will cost you because of your age......so look at what insurance policy will cost you to cover your mortgage......buy a bit more......and have it for ever....till you die...or till you don't need it any more.....I hope my theory makes sense???

Out of curiosity if you look at how much you want to invest per month or year.....and put it into 5 year GIC's with the hope of 3% compounding....keep rolling them over........and keeping in mind you don't need all of the funds on the first day your child goes to University.....you would have a huge sum to micro manage...and then a bit more every 5 years......no fees.....just your time to manage it all.....also could you use you and your wife's TFSA accounts as well for this purpose?

A quick glance....tells me this is a bit of a gimmick and loaded with fees.....but I could be wrong. And a three hour session....that is longer than a pots and pan salesman or a timeshare presentation. Like I say, I know nothing....but I see the need of caution here.

I understand the value of RESP in getting government grants, and that they are therefore worth looking into.
I think that at a minimum you should look at other RESP plans. This one appears to be invested in the stock market and has lots of complications and unanswered questions - insurance, lack of info on investments, lack of info on who protects you if Knowledge First goes bankrupt or out of business, high fees. After 3 hours, you should have ready answers to all of these things.
I believe DUCA credit union offers RESPs. They are in southern Ontario. I am not recommending them particularly, as I have no experience, but it would be a place to start comparing. Not sure where you live. I doubt very much that you would lose everything with DUCA if you stopped contributing.
You need to be assured that the plan is worth the risks, even with government grant. What happens if your child never goes to university? I think, but am not sure, that it can be transferred to a sibling, but if nobody goes on to further education, that you have to give back the government portion and also you would then get taxed on the returns you have made, before you could get the money back. Perhaps you discussed this with the sales rep?
As far as I can see, there are no guarantees with this plan. Past performance does not guarantee future success. They are depending on other families dropping out in order to have backup money. This suggests that families regularly do drop out and lose all their money. It could happen to you too.

Yas said

Thanks kanaka. Based on their fine print, the insurance pays just in case of health problems causing injury or death. It doesn't pay anything if I lose my job or this sort of things. Not sure if this makes sense now.

Based on their numbers, after deducting the fees, the average interest here was 5%. Of course I am obligated to a plan and should contribute yearly. In addition, if I withdraw or cancel my plan, I will lose interest which will go to others in the same pool (the pool is based on the child's birth year).

The beauty of RESP is its government grants. Government puts 20% to maximum of $500 a year and $7200 in total. I can't get such a thing from TFSA even though we are close to maximize that.

Thanks

Insurance pays just in case of health problems causing injury or death.
Hmmm so a life insurance policy for ever and not part of a package deal covers death and the ambiguous part is what is a health problem causing injury? Does it cover depression, a work injury that keeps you away from work for a year or you have to be retrained for a lesser paying job? I don't like one stop shopping when there are professionals in insurance and likely the RESP.

I think you should shop around for both separately and even contribute to the RESP in multiple methods/institutions (banks,credit unions, or discount brokerage) ie. GIC, BONDS, ETFS OR SHARES....as suggested and also be able to adjust when necessary. And chances are as mentioned "you" can do better than what you were offered.

Yas said

Thanks kanaka again. That is a good question to ask them regarding the injury part. Regarding investing in different things, I really don't have time to do that but it is something I should look into it.

Yas....what you are getting into sounds like a sales pitch from a salesman on a high commission rate. What credits does he have to add to his name? Have you checked this out with BBB? The time you have spent here has given you invaluable information and please don't put yourself in the position of looking back in 20 years and then realize you were short changed with growth and compounding. Have you thought of seeing an accountant or others that offer the same product? Just a quick note.....I have been using an adviser for RRSPs for the last 20 years and will phase him out and go on my own......reason why.....he gets a commission on every GIC he sets up for me and I can do better rate wise...and by going through him it has prevented me from $20,000 or more in gained interest. You may want to reallocate your "time" as the monetary reward is more than likely one of the better ones you will ever have.

Let us know what you get back from them, Yas.

There is a lot of flexibility as to what you can invest in with Qtrade, iTrade etc., but they are also riskier investments than simple GICs etc. If it were me, the only way I would take this risk if I were choosing very high grade bonds with maturities that coincide with when my child's tuition payments would be due, more or less; then it is not much of a risk; you are only risking the possibility that rates might go up in the interim, and you do know exactly what you will have in the end. If you invest in the stock market, ETFs, etc., then you are essentially depending on market timing because you have to get the money out at a specific point in time, even if it is a relatively long term, whether the market is low or high at that point. Market timing almost never works. So, then you are going to be looking at trading between now and then, to which I can only say "good luck".

There must be other competitors that are not banks or credit unions, plans that bear some resemblance to the one you are looking at? I don't know that market though, so maybe there aren't.